New data obtained by Webb-site show that Gambia and Guinea-Bissau, two small African countries, now account for 75% of the mainland Chinese who have obtained residency in HK under the Capital Entrant Investment Scheme. The requirement for mainlanders, who account for 84% of the CIES, to obtain permanent residency somewhere else is farcical and should be scrapped. It is part of HK's value proposition to be the Monaco of China, and we should welcome them.

Chinese Africans in HK15 April 2012

At the end of our article You can call me Dr
Sir last month, we remarked that
The Republic of
the Gambia has a special relationship with Hong Kong: although it has no
consulate here, Gambia has been the largest single conduit for Chinese
mainlanders seeking residency in HK via the
Capital
Investment Entrant Scheme (CIES). In order to qualify for
that, apart from making an investment of a certain size in certain assets,
mainlanders must have permanent residence in a foreign country. This is so that
we can all pretend that mainlanders moving to HK under the scheme are coming
with their money from overseas and not bypassing mainland capital controls and
treating HK as the Monaco of China that it is.

Those comments were based on figures from figures as of 31-Dec-2007, provided
in an
answer to LegCo on 16-Apr-2008. That was quite early in the scheme, when
only 1,114 Chinese nationals had been formally approved under the CIES for
residency in HK. So on 26-Mar-2012, Webb-site filed a request under the
Code on
Access to Information for an update on these figures. 18 days later on
Friday, we received the figures from the Immigration Department. As of
29-Feb-2012, there were 11,585 mainlanders in the CIES, up more than 10-fold
since 31-Dec-2007. Here is a breakdown by country of permanent residence:

As you can see, our relationship with Gambia has gone from strength to
strength: the majority of mainlanders (57.3%) under the CIES now have
permanent residency in Gambia, a small African country (population: 1.7m) which
very few of them have ever visited. Like Hong Kong, it is a former British
colony. Soaring up the ranks from 8th place in 2007 to 2nd place now is the
former Portuguese colony of
Guinea-Bissau, another small African country (population: 1.6m) currently
enduring its
latest military coup. It does not have a consulate in HK. Between them, the
two countries account for 75% of Chinese mainlanders under the CIES.

Searching the web for firms handling applications for CIES, we find several
that openly advertise that they will obtain permanent residency in Gambia or
Guinea-Bissau as part of the CIES service. Solicitors ONC Lawyers, for example,
offers assistance with the
Gambia, while Wingate Business Ltd
claims that it can
obtain a Gambia or Guinea-Bissau identity within 15 days. Rowland Chow, Chan &
Co can get you
Gambia permanent residency in 1 month.

According to the
latest published statistics on CIES, as of 31-Dec-2011 there were 13,111
formal approvals, of which 11,022 or 84.1% were for Chinese nationals with
permanent residence overseas. So 563 mainlanders gained formal approval in the
first 2 months of this year, or an annualised rate of 3,378 per year. Taiwan and
Macau accounted for another 4.7% of CIES members, leaving 11.3% from outside
Greater China. The CIES then, is very much a vehicle for wealthy mainlanders to
obtain residency in HK.

It is part of HK's value proposition to be a convenient offshore tax
haven for wealthy mainlanders, just as Monaco is to Europe, and as Jersey,
Guernsey and the Isle of Man are to the UK. If mainlanders establish HK
residency, then after 7 years here they will qualify for permanent residency
and, because they are Chinese nationals, they will then also qualify for an
HKSAR Passport. If they are paid in HK, and do not spend more than 183 days in
the mainland each year, then their employment remuneration will be exempt from
Individual Income Tax in the mainland (see Inland Revenue
pamphlet
72(e)). So they can base themselves here while supervising their mainland
business interests.

More importantly in many cases, as HK residents, mainlanders under CIES
will not pay taxes on investment income, capital gains and death. HK has a
territorial-based system of taxation; it does not tax offshore income. HK taxes
earnings (salaries and profits) but does not tax bank interest, dividends or
capital gains - and if it ever tried to do so, then it would have to drop the
territorial approach and tax residents on their worldwide income and gains,
otherwise people would just invest their savings overseas. Indeed, onshore bank
interest was once taxed, and a lot of money was kept in offshore branches and
subsidiaries of HK banks until the tax was abolished. HK doesn't tax death
either. The PRC proposed an inheritance tax in 1994 but has not yet legislated
it.

The spending of mainlanders living in HK under the CIES will help support the
economy, and the management of their savings will support the banking and asset
management sectors. We should welcome their presence - but why do we make them
jump through hoops by obtaining permanent residency in poverty-stricken African
countries that they are unlikely ever to visit? The whole thing is farcical. The
requirement for overseas permanent residency should be scrapped.